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Condo association spent reserves and nothing left

Posted on Tue, May 25, 2010 @ 07:53 AM
  
  
  
  

Our condo association paid attorney's fees from condo association reserve funds that were residing in the operating bank account.  Now all monies are depleted. As assessment to condo owners be will be tremendous. Who is liable?

The short answer is no one is liable. Where was the money to pay the bill to come from? Did you want a special assessment? As a homeowner, be proactive. Know your documents, attend meetings, understand the issues. Good luck. 

The board has a fiduciary responsibility to properly reserve. Your statement that they used "all the reserve money residing in the operating account" is somewhat troubling and interesting. Most often, reserves are kept in a separate account. If in operating, it may be this year's reserve contributions that were used for a legal case. Since that is unknown and you ask a very broad question (it appears to me in an effort at "gotcha!") the board may be assessing to replace the unexpected expense in legal fees. 
 
I don't know anyone that reserves for a lawsuit or legal action. If the legal action (either in response to legal action taken against the community or taken on behalf of the community toward another entitiy in the interest of the community) apparently caused expenditures of funds, then it is an association expense. 
 
Urge your board to be forthright and informative about what has happened. If it is still a legal case, they probably should not discuss the particulars but can give an overview so that people have a better understanding of what has happened. 
 

QUWBW7K89M75

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COMMENTS

According to National Reserve Study Standards, you should only spend Reserves for assets that are a common area maintenance responsibility, life limited,with a predictable remaining useful life, and that are above a minimum threshold cost.  
Perhaps this association was taking a gamble with their Reserve funds, incurring legal fees that would result in an award to the association?

posted @ Tuesday, May 25, 2010 8:03 AM by Robert M. Nordlund, P.E., R.S.


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